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Unformatted text preview: Chapter 11 - Auditing the Purchasing Process CHAPTER 11 AUDITING THE PURCHASING PROCESS Answers to Review Questions 11-1 Expenses can be classified into three categories: 1. Product costs are expenses that can be matched directly with specific transactions or events and are recognized upon recognition of the revenues. An example of a product cost would be the expensing of inventory through cost of goods sold. 2. Period costs are expenses that are recognized during the period in which cash is spent or liabilities incurred for goods and services that are used up at that time or shortly thereafter. Such expenses cannot be directly related to specific transactions and are assumed to provide no future benefit. Examples of such expenses are administrative salaries, rent expense, and interest expense. 3. Allocable costs are allocated by systematic and rational procedures to the periods during which the related assets are expected to provide benefits. Depreciation of plant and equipment is an example of such an expense. 11-2 The three types of transactions that are processed through the purchasing process are: • Purchase of goods and services for cash or credit • Payment of the liabilities arising from such purchases • Return of goods to suppliers for cash or credit The more common accounts affected by each major type of transaction are: Purchase transaction: • Accounts payable • Inventory • Purchases or cost of goods sold • Various asset and expense accounts Cash disbursement transaction: • Cash • Accounts payable • Cash discounts Purchase return transaction: • Purchase returns • Purchase allowances • Accounts payable • Various asset and expense accounts 11-1 Chapter 11 - Auditing the Purchasing Process 11-3 A purchase requisition is a request for goods and services by an authorized individual or department within the entity. A purchase order contains the description, quality, quantity, and other information on the goods and services being purchased. A receiving report is used to record the receipt of goods. A vendor invoice is the bill from the vendor that includes the description and quantity of the goods shipped or services provided, the price including freight, the terms of trade including cash discounts, and the date billed. A voucher is a document that is frequently used by entities to control the payment of acquired goods and services. An entity would combine all these documents into a "voucher packet" because such a packet would contain all the information on a particular purchase transaction. If there are questions about the transaction at a later time, the entity can obtain access to all the documents and information more easily....
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This note was uploaded on 11/13/2011 for the course ACCT 470 taught by Professor Fdsafd during the Summer '09 term at Franklin.
- Summer '09